Serbia's EU association is not a Must

"If the Balkans find that too many obstacles are strewn about the road to Brussels, they may well be tempted to set out on the shorter road to Istanbul"

(Misha Glenny, Balkan political analyst)

Practically the Eastern EU enlargement for the moment is stopped. Croatia's membership is a bit delayed, Turkey’s EU bid is dead as continent simply has no intention of ever incorporating 70 million Muslims and the rest – such as Serbia - are still more or less in association process. Tens of thousands demonstrators demanded early elections in Serbia at a protest rally 16th April 2011, blaming Serbia’s pro-Western government for a deepening economic crisis and alleged corruption. The government has rejected the demand for early elections, saying they will be held after Serbia wins candidacy for EU membership in the autumn. European Commission (EC) unanimously agrees that early parliamentary elections in Serbia should not be called which position in my opinion gives a strange picture about EU's view towards democracy - really a view that democratic elections would harm stability and EU-accession.


From day one of membership at the latest, candidates are expected to be able to implement and enforce the "acquis communautaire", i.e. the detailed laws and rules adopted on the basis of the EU's founding treaties and make EU law part of their own national legislation. The most positive part of the European Commission progress report states that Serbia is well advanced in the sector of industry, small and medium enterprises, agriculture and food safety and that good progress has been made in the fight against drugs and organised crime.

The European Parliament ratified the Stabilisation and Association Agreement (SAA) between the EU and Serbia in Strasbourg on 19. January 2011. The Questionnaire, which covers all elements of Serbia’s future negotiations with the EU, was delivered to Serbia by the EC on 24 November 2010 and answers were delivered on 31. January 2011. Responses to 2,483 questions, divided in six annexes and 33 chapters, were completed within the record 45 days and are divided in more than 37 volumes and weigh ten kilograms. Third expert mission of the European Commission (EC) analysing responses to the EC Questionnaire in order to prepare an opinion on Serbia’s EU membership, finalized its work on 18 March.

Serbia has implemented significant structural reforms in many parts of its economy over the past decade but more is needed. The main components of further reforms are: judicial reforms, the continuous fight against organised crime and corruption, the improvement of our political system, property right issues and reforming Serbia's regulatory agencies and removing bureaucratic bottlenecks. It remains to see if there is enough political will for these reforms or even for membership – especially after Serbia's next elections, due by spring 2012. Most sectors of the economy are open to foreign investment. Reforms have improved the investment environment is improved by reforms, but e.g. corruption discourage foreign investments (Serbia ranks 83rd out of 180 countries in Transparency International’s Corruption Perceptions Index for 2009).

More about Serbia's EU integration can be found from The EU Integration Office of Serbian Government.

Serbia's road towards EU membership has two obstacles – status of Kosovo and cooperation with Hague tribunal (ICTY). Probably the later problem will be solved with Serbia's own efforts before association process is in its final stage. Serbia's vice-PM Djelic said in his interview (Euractiv) on March 10. 2011, that

today in Serbia all major criminal figures are either under arrest or on the run. In the fight against corruption we have had high-level arrests of people who used to run our railway system, our road system, teachers, professors, surgeons, public officials. It is still not very pleasant but it is a demonstration that there has been a critical mass within the administration and the people to fight these phenomena.

The question of Kosovo is politically harder as there is a need to find a common compromise with Kosovo Albanians and this question can end or at least freeze Serbia's EU association for long time, maybe so long that when solved there may not be EU at all or it is completely different than today.

New elements in new Kosovo talks

Talks between Serbia and its separatist province Kosovo started finally in Brussels on March 2011. The agenda concentrated to technical questions however everything is about politics i.e about solving Kosovo's status. The status question would solve problems regarding north Kosovo, which is currently under “dual sovereignty" (officially part of Kosovo, which officially is UN protectorate and under sovereignty of Serbia and practically totally integrated to Serbia).

The new situation has forced also International Crisis Group (ICG) to admit the defeat of its Kosovo policy recommendations during last decade. ICG has informally as informal extension of U.S. State Department however pretending to be neutral mediator and think tank. During earlier “status” negotiations 2005 it endorsed preconditions before talks and afterwards supported sc Ahtisaari plan. Now in their new analysis Kosovo and Serbia after the ICJ Opinion ICG sees Kosovo's partitition with land swap one of possible solutions during coming talks between Belgrad and Pristina. The (dead) Ahtisaari plan and expanded autonomy for North Kosovo are the other two conceivable solutions according ICG.

Last decades have showed how it is possible to draw new borders in Europe, the issue is only the method; e.g. while the Czechs and the Slovaks negotiated by themselves the terms of separation nobody objected to the splitting of Czechoslovakia. In Kosovo there has been implemented only forced temporary solutions outsiders and therefore the outcome is a frozen conflict. The International Crisis Group (ICG) advised the Kosovo Albanian authorities to consider granting autonomy for the northern Kosovo. In exchange they would get "Serbia’s recognition of Kosovo statehood". ICG concludes that Serbia and Kosovo have equal sovereignty in north Kosovo and should work to resolve what the ICG calls "the Balkans’ most serious territorial dispute.". Many other even more sustainable solutions are available such as splitting of Kosovo to independent Albanian part and to Serbia integrated Northern part, with or without land swaps. Also a sc Hong Kong model is possible; such a compromise – with the principle of 'one country, two systems' - would guarantee Kosovo economic and political autonomy without endangering Serbia's territorial integrity. It is as well possible to create national union between Albanian part of Kosovo and Albania. In my opinion all these alternatives could be better for local parties than to continue the situation as today. Economically, Serbia is probably better off without Kosovo.

Belgrade's chief negotiator, Borko Stefanovic, said in an interview published April 23, 2011 in the daily newspaper "Blic" that "Serbia's negotiating team is not resisting the possibility of talking about the division of Kosovo." Belgrade has hinted in the past that it could support a division, with Kosovo's Serbian-majority north being attached to Serbia. (Source: RFERL )

The trial against two former leaders of the Kosovo Liberation Army, KLA, who are charged with war crimes committed against civilians in Albania during the conflict in Kosovo, has gotten underway in Pristina. The victims of the crimes included in the indictment are Albanians whom the KLA commanders accused of collaborating with Serbian authorities, and individuals whose political views differed from those of KLA. The trial against the two men begins several months after Dick Marty, Special Rapporteur of the Council of Europe, released a report in December alleging that human organs were harvested from detainees during and after the conflict in Kosovo, with the harvesting run by the KLA and allegedly taking place in Albania. Politically the key importance in Marty report is an allegation that a criminal network is linked to Kosovo’s Prime Minister Hashim Thaci and that western intelligence services knew this link but were silent to stabilize the region. More in Balkaninsight and in my article Captured Pseudo-State Kosovo .

Serbia's Foreign trade

The value of export amounted to EUR 7.4 billion, which was a 24.0% increase when compared to the same period in 2009, while the value of imports amounted to EUR 12.6 billion, which was a 9.7% increase relative to the same period in 2009. The deficit amounted to EUR 5.2 billion, which was a decrease of 5.7% in relation to the same period in 2009.

EXPORTS AND IMPORTS OF GOODS BY ECONOMIC ZONE, 2010.

Zone

Exports, in mlln. EUR

Imports, in mlln. EUR

Share (%) in the total

I-XII 2009

I-XII 2010

I-XII 2009

I-XII 2010

Exports

Imports

Total

5961,3

7393,4

11504,7

12621,9

100.0

100.0

EFTA

66,0

52,3

189,0

171,9

0.7

1.4

EU

3195,9

4235,3

6532,7

7068,7

57.3

56.0

CEEC

306,4

359,8

164,6

205,8

4.9

1.6

CIS

408,2

599,3

1665,6

1959,1

8.1

15.5

MEDA

1642,7

1880,0

1026,9

1174,2

25.4

9.3

(Source: SURVEY RS 4/2010)

For economical development sc Foreign Direct Investments (FDI) are important factor.According last statistics in terms of the country structure, investors from the European Union top the list, accounting for about 70% of the total FDI influx. The leading spot on the country list is held by Austria, followed by Greece, Norway, Germany, the Netherlands and Italy, while major investor countries also include Slovenia, France, Hungary, the Russian Federation and Luxembourg. The actual amount of investments from U.S. and Israel is significantly higher than the official figure due to their companies investing primarily through European affiliates. ( Source and more info from SIEPA )

Other directions – Turkey and Russia

"For many years, the perception has been that Turkey needs Europe more than Europe needs Turkey.  If Europe does not look hard at the dynamism of Turkish economic and foreign policy, it may miss the boat."

(Misha Glenny, Balkans political analyst)

Serbia was under Ottoman empire hundreds of years and according Gallup polls only less than 20 % Serbs consider Turkey a friendly power. At the state level, the historic vision in Serbia of Turkey as an abusive occupier has little influence. Turkey has also been very active in Balkans during recent years; its trade with the Balkan countries increased to $17.7 billion in 2008 from about $3 billion in 2000. Turkey's banks provided 85 percent of loans for building a highway through Serbia for Turkish transit of goods to the EU. In 2008, Turkish Airlines bought a 49 percent stake of Bosnia's national carrier, BH Airlines, and has also expressed its interest in Jat Airways – the Serb national carrier – and other Turkish companies are keen to invest in shops, supermarket chains and hotels. Since January last year, Serbian exporters have been selling their products in Turkey free of customs duties. (Source: Turkey uses economic clout to gain Balkan foothold by Dusan Stojanovic)

On 16 October 2009 Turkish Foreign Minister Ahmet Davutoglu gave a presentation in Sarajevo, speech concludes with the promise that the golden age of the Balkans can be recaptured:

Like in the 16th century, which saw the rise of the Ottoman Balkans as the center of world politics, we will make the Balkans, the Caucasus and the Middle East, together with Turkey ,the center of world politics in the future. This is the objective of Turkish foreign policy, and we will achieve this. We will reintegrate the Balkan region, the Middle East and the Caucasus, based on the principle of regional and global peace ,for the future, not only for all of us but for all of humanity.

Increase trade relations, remove (visa) barriers to freedom of movement between people, privilege soft power, emphasize a common history … such have been the core principles of Turkish foreign policy, not only towards Syria and Iraq but also towards Georgia, Russia or Greece. Turkey and Serbia’s free trade agreement came into force on September 1 this year. The deal opens Serbia’s to Turkish investors and paves the way for visa-free travel for nationals of both countries.

However, many commentators in Serbia see this change of Turkish foreign policy as an alternative to EU membership because both Turkey and Serbia know they are still far from formally joining the union. (More Multikulti and the future of Turkish Balkan Policy by Gerald Knaus/ESI)

Suha Umar, who left his post as Turkish ambassador to Belgrade on September 10, 2010, concluded his period in Serbia as follows:

When I arrived in this country… relations between Serbia and Turkey were at their lowest level because of [Turkish support for] Kosovo’s independence but also because of the lack of common interests, some prejudice and a lot of manipulation from outside. We managed to overcome the obstacles. If we are after peace and stability, without Serbia truly seeking peace and stability, it won’t happen. If we are looking for trouble, without Serbia it is very difficult to create trouble. This is why Serbia is the key country and Turkey has realised this fact. (Source: BalkanInsight )

Russian Prime Minister Vladimir Putin visited in Balkans end of March 2011 emphasizing the bonds linking the two Orthodox Christian nations. The two countries’ ties go back to when Russia supported Serbia’s drive for independence from the Ottoman Empire in the 19th century. Putin's visit took place on the eve of the 12th anniversary of the NATO bombing over Belgrade's policy toward Kosovo reminding Serbia of its past differences with the West. A survey of 42 countries conducted in the summer of 2009 showed that Serbs had the fifth-most favorable opinion of Russia: Some 53 percent of respondents had a positive opinion of the country, while 61 percent expressed negative feelings toward the USA.

Putin delivered a message that Europe needs South Stream as part of its energy security because it can no longer rely on North Africa as a safe alternative. Serbia is a very critical part of the whole South Stream project. Beside energy policy there are 15 new agreements between Serbia and Russia being drafted at the moment including cooperation in science, technology and tourism. Politically Putin promised continued Russian support for Serbia over Kosovo. He pledged Russian investment and further cooperation in energy sector – e.g. development of ‘Lukoil’ petrol pumps net, new investments in energy system and electric power plants - in the power system, railway, infrastructure and agriculture. The two countries signed agreements on inter-governmental tourism, scientific and technical cooperation, and an international road service. A package for Serbian economy brought to Belgrade by Putin is estimated to be worth USD 10 billions. At the moment it is known that 3 billions are for the Army of Serbia. Also debts by the NIS to Serbian budget shall be settled (about EUR 1 billion). And finally, the enterprise ‘Southern Stream’ is going to be founded. In addition, Putin revealed that the Russian government is considering issuing an $800 million loan to Serbia for railway projects.

Recently after Putin's visit the first military consultations between the Ministries of Defense of Serbia and Russia in Moscow, a bilateral military cooperation plan for 2011 was signed, while Serbian and Russian foreign ministers confirmed that the relations between the two countries are friendly, close and improving. They also said this would be confirmed by a strategic partnership agreement to be signed in the near future.

Serbia's possible NATO membership may have big influence to Serbia-Russian relationship. The ruling coalition in Belgrade has designed to leave the door to NATO membership open without quite saying so. While the ruling coalition is supporting Montenegro’s intention to become a NATO member it officially to back a Resolution on Military Neutrality made by National Assembly on December 2007. According to a WikiLeaked February 2010 cable from the U.S. Embassy in Belgrade, “Tadic believes that Serbia cannot remain outside of NATO forever, but doesn’t say this often because of the political sensitivity of the issue.” (Source: Serbianna )

The opposition - Democratic Party of Serbia (DSS) – is advocating a non-aligned policy (opposing Serbia’s NATO accession), similar to Ukraine, Finland, Sweden, Ireland, Switzerland, and other democratic states, promotes strong economic ties with Russia. From tactical point of view by moving closer to Russia, Serbia strengthens its negotiating position with both the EU and the US.


Energy Aspect - South Stream nullifying Nabucco

Energy aspect is now more important in geopolitics and for Balkans as well than decades before. First of all, due to the turbulence in the Arabic-Muslim world and the ongoing rapid increase in industrial production in countries such as China, India, Brazil, Vietnam and South Africa, the price of oil and gas has increased significantly. Because of the Arab turmoil, LNG imports are at risk, as well as, the whole spectrum of hydrocarbon imports from the Arab world for years to come. Russia, as well as, Kazakhstan and Turkmenistan are starting to lay down long-term plans for the exportation of tremendous amounts of gas to China for the next decades. That means in simple terms that the EU states will have to act fast in order to secure sufficient amounts of energy, otherwise they may end up relying in the spot market by instable regions such as North Africa, Nigeria and others. The continuous instability in Iraq in combination with the isolation of Iran due to its nuclear program makes the European energy market anxious to secure reliable and steady flow of natural gas and oil.

As a result Russia gains more than a 1.2 billion Dollars daily only from its oil exports, thus being able to continue its investment program and in parallel being able to attract significant foreign direct investment and fund placements. Between January and March, 2011, around 3.5 billion Dollars were placed in Russian-based funds for investments purposes and the Moscow stock exchange has seen an almost 30% growth. A 7.5% GDP increase for the Russian economy is projected -ceteris paribus- for 2011. (Source: Russian energy moves indicate a shift in priorities by Ioannis Michaletos )

The international gas pipeline South Stream shall be finished until December of 2015 while its construction shall begin in 2013. The $21.5 billion South Stream pipeline would transport up to 63 billion cubic meters of gas from Russia to Central and Southern Europe. The stretch running through Serbia shall cost from EUR 1.3 to 1.5 billions. Serbian construction on a leg of a natural gas pipeline that could boost plans for the South Stream pipeline for Europe started in September 2010. The project would be completed this year.

The New York Times reported on 22nd March 2011 that the German oil-and-gas company Wintershall AG (a unit of German chemicals giant BASF), is set to join Russia's South Stream natural-gas pipeline, a move that the partners hope will increase the pipeline's chances of gaining European Union backing. BASF said joining the South Stream consortium would give it access to markets in southeastern Europe. South Stream is owned 50-50 by Italy's ENI and Gazprom . Electricite de France is to take a 10% stake later this year as well Wintershall AG its 15 % stake.

Serbia and Slovakia have signed an agreement on cooperation in the construction of gas pipeline Aleksandrovac-Novi Pazar-Tutin. The agreement is worth €45 million and the project will be implemented jointly by a Serbian gas company Srbijagas and a Slovak consortium led by company Euroframe. The construction of the pipeline with the capacity of 100,000 cubic meters per hour could be completed in two years. Serbia has also started a €14 billion investment cycle in the energy sector and its main components are investments of about 2 billion euros in the gas sector, about 1 billion euros should be invested in the oil sector, while the potentials of renewable energy sources would enable investments worth between 2 and 6 billion euros over the next five to seven years. A Canadian company REV has informed that the company will invest about €140 million in the construction of two hydroelectric power plants - Brodarevo 1 and Brodarevo 2 on the River Lim. The Electric Power Company of Serbia (EPS) and the Italian company Seci Energia have signed the Preliminary agreement which concerns implementation of construction of a system of hydroelectric power plants on the middle reaches of the Drina river. Several agreements on cooperation in use of hydro potentials of the Drina river have already been signed between the governments of Serbia, Italy and the Republic of Srpska (RS). The capacity of these hydroelectric power plants will be 300 megawatts, while the value of the investment is estimated at about €819 million.

From EU*s side it has its own favorite energy project called Nabucco, however there is broad recognition that the €7.9bn ($10.5bn), 3,900km project is desperate for momentum as it enters what even its backers concede is a make-or-break year. Among them is the commission itself, which has contributed €200m in start-up funding. The existential question hanging over Nabucco is whether there will be enough gas to make it commercially viable. The biggest difference between the two projects is that while Gazprom will fill the South Stream pipeline with Russian gas, the consortium behind Nabucco has yet to sign up any gas suppliers or, for that matter, investors.

The competition over gas is coming harder. In my article New Player in Caspian Sea Power Corridor I described how China has came to game to take big share of Turkmenistan gas. This gas was one of the last hopes for Nabucco to fill its planned pipeline. For contest between EU’s Nabucco and Russia’s South Stream China’s actions favor later. Today’s arrangements are securing gas for South Stream while Nabucco still is searching supply. It is more clear that Nabucco should be filled with Iraqi and/or Iranian gas and political aspects related to this may delay finding(private) investors and the implementation of project as whole. In bottom line while Russia is taking its part from old gas fields and China from old and new gas fields the Nabucco pipe still is more than half empty.

Turkey has been using its recent diplomatic rapprochement with Moscow to lobby for making the Balkans a major strategic hub for a Russian gas pipeline planned to stretch from Central Asia to Western Europe, via Turkey.

Reshaping new cooperation framework

Inside EU there is already increasing amount of EU sceptics. Some of them be regarded as right wing and/or populist politicians, however in my opinion their criticism should not be ignored only because of their political position. Especially in UK has been discussions about being inside or outside of EU. (Director of the Trade Policy Research CentreDirector of the Trade Policy Research Centre) Ronald Stewart-Brown gives one possible position related to the content of EU membership in his article “The Vacuity of UKIP’s Flagship Policy” as follows:

One possible solution is to negotiate to stay in customs union with the EU outside the framework of the EU treaties and institutions on the basis of a simple new “plain vanilla” bilateral customs union agreement. Staying within the EU tariff band could reasonably be seen as a fair price to pay for continuing free movement of goods. Such an approach combined with other agreements to cover areas such as services, intellectual property, public procurement, competition and technical barriers to trade could attract the happy label of “Staying in Europe for Trade”. It would also approximate to the Common Market most people thought they were voting for in 1975, which was after all a customs union rather than a free-trade area.

In my article “Turkey’s EU hopes -is there any?” I was covering a German idea about a “privileged partnership” for Turkey instead of full membership in order to allow Turkey into the EU economically but not politically. From my point of view “privileged partnership” could pre indicate a possible search of “third way” between EU member- and non-membership. The model – when first created – could be copied also with some other countries which now are in enlargement process or included in Eastern Partnership program which include free trade agreements, visa waivers, financial aid and economic integration with the EU. This “privileged partnership“ could be a pragmatic alternative model in EU enlargement and it could even be better alternative for all stakeholders than full EU membership.

The EU’s main political aim in the region, at least in the short term, is to avoid trouble. And the bloc’s most effective stabilisation tool is money. The European Investment Bank has increased its lending in the Balkans in the past two years and will soon open regional headquarters in Belgrade. There is no concern about “enlargement fatigue”. The bloc’s financial institution aims to “help member states and future member states achieve their objectives”.

My Perspective

"There is no enlargement fatigue, what I see is enlargement apathy on the part of governments in the Western Balkans" (Stefan Füle, European Commissioner for Enlargement)

EU does not have a fixed timeframe for Serbia's EU integration, and that it will make the decisions only once it estimates that Serbia is ready. The late reaction to the democratic revolts in the Arab world only further underlined that Brussels lacks a vision of how to steer a common EU policy agenda. Democratic deficit, enlargement fatigue and ever more rescue funds. Is there still a future for a common Europe? Is the EU the real sick man of Europe?

The European Union seems to be ready to welcome Serbia as a candidate member in spite of enlargement fatigue and economic crisis. In the meantime people in Serbia show signs of scepticism about EU membership. Support for EU accession has dropped to a meagre 57%, the lowest level of support since 2002 (when the Serbia EU Integration Office started these surveys), while a third of the respondents fears that the EU will stop the enlargement process altogether in the near future or may even fall apart.

The Balkans still aspire to EU membership, but Turkey allows them privileged access to a huge and rapidly growing domestic market of 74 million people, compared to about 55 million in the entire Balkan region. A Free Trade Agreement between Turkey and Serbia entered into force 1st of September 2010 and will give Serbian exporters opportunity to sell their products duty free to the large Turkish market, in addition to the already existing free trade agreements with the EU, CEFTA, Russia, Belarus and Ukraine.

All Balkan countries have their own development paths – some countries are going to join fast to EU (Croatia), some are going to do it later (Macedonia, Albania), some are maybe looking alliances from other directions (Serbia), Kosovo will be international protectorate – a quasi-state captured by organized crime tribes - also next decade; Bosnia will totter between breakup, federation/confederation, state, protectorate depending inner politics and exterior influences.

Serbia has strategic partnership agreements with China, Italy and France, and one such agreement is expected to be signed with Russia soon. Serbia can be seen a gravitational center of the region. In my previous articles, still and now even more than before I have a view that Serbia should think if joining to EU is worth of time, money and bureaucracy it demands, could the main benefits of EU membership be achieved via “third way”. Despite this I think that at this moment it is good idea to continue EU process but not only to fulfil EU needs but especially the needs of the beneficiaries aka Serbs not EU elite in Brussels. Most of the some 32 chapters negotiated in association process can help economical and other cooperation between Serbia and EU. Also Serbia should same time develop its economical cooperation with Russia, other BRIC countries, Turkey and regional neighbours.

Related articles:

 Serbia on the road to EU

Turkey’s EU hopes -is there any?”

Captured Pseudo-State Kosovo”

Is it time to bury Nabucco?

"New Player in Caspian Sea Power Corridor"

EU’s big choice – Nabucco or South Stream?

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Tags: Ari, BalkanBlog, Balkans, EU, Kosovo, Rusila, Russia, Serbia, Turkey, energy, More…enlargement, partnership, policy, privileged, third, way

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